Skywest

Introduction

SkyWest Airlines (SkyWest) was a rare breed in the ultra-competitive regional airline industry. As the overall airline industry suffered through terrorist attacks, rising fuel costs, and increased competition, SkyWest was able to grow its business and sustain profitability. The aforementioned events that impacted the airline industry had a severe effect on the structure of the industry as a whole. Several major airlines were in the process of emerging from bankruptcy while mergers among the largest airlines seemed inevitable. SkyWest, like most regional carriers, relied on contracts with the major airlines for its customer base and revenues. With industry consolidation underway, SkyWest’s recent history of profitability was no longer a sure bet.

Company Analysis

In 2007 SkyWest celebrated its 35th anniversary of partnering with the major airlines to provide service to smaller airports. At the beginning of 2007 SkyWest served 135 cities in 38 states and had built a national presence. SkyWest obtained the majority of its business through partnerships with two major airlines, United Airlines (United) and Delta Airlines (Delta). These companies had a lot in common as both major airlines recently emerged from bankruptcy and used similar business models. SkyWest’s contracts with Delta accounted for approximately 59.9% of its capacity while 40.1% of capacity was contained in contracts with United. The contracts with both major airlines stated that SkyWest would receive a fixed dollar payment per completed flight hour, and would also be reimbursed for costs such as fuel and aircraft ownership and maintenance costs. United and Delta’s recent bankruptcies were expected to lead to more outsourced flights and therefore more business to SkyWest.

In an effort to grow the company, SkyWest acquired Atlantic Southeast Airlines (ASA), a company that was owned and managed by Delta Airlines. This acquisition helped SkyWest achieve geographic growth into the Southeastern United States. ASA, like SkyWest, was known for its low-cost operations. However, ASA brought with it one of the worst customer service records in the industry and a unionized workforce. Like most acquisitions, it also brought with it an increased debt-load to SkyWest.

SkyWest was well aware that it needed to diversify its business outside of United and Delta. At the end of 2006, SkyWest entered into a five-year contract with Midwest Airlines (Midwest) to serve markets from Midwest’s hubs in Milwaukee and Kansas City. While Midwest was not a major carrier on the level of United and Delta, it represented SkyWest’s first attempt to reduce its reliance on the two major carriers.

The following SWOT analysis summarizes the current state of SkyWest’s business:

Strengths

Ð'* SkyWest possesses a distinctive competence in that it is the lowest-cost provider of regional air service for Delta and United. This is extremely important, as cost pressures in the airline industry are very strong.

Ð'* SkyWest has a good reputation for on-time arrivals and low cancellations. A regional airline must possess these qualities in order to acquire a contract from a major airline.

Ð'* SkyWest maintained a high safety standard through safety equipment upgrades such as implementing a mobile data collection and reporting software that ensured that SkyWest met or exceeded its safety standards. It would be impossible for SkyWest to exist if customers perceived the company to be an unsafe airline.

Ð'* SkyWest had orders outstanding to purchase additional aircraft that would be more cost-efficient to operate than older models. In addition to helping SkyWest lower its costs, acquiring new planes was another requirement that regional airlines had to meet in order to be considered by major airlines for contracts.

Ð'* SkyWest is a financially viable company as evidenced by four consecutive years of growth in operating revenues and operating income. This is a significant accomplishment in that the airline industry is extremely competitive and has been through a tumultuous six-year stretch.

Ð'* SkyWest offers a generous package of benefits for its employees, which includes retirement plans and a stock purchase plan. With SkyWest growing it will need to hire thousands of new employees. The company’s human resource policies will help attract the highest quality workers in the labor pool.

Weaknesses

Ð'* SkyWest relies heavily on United and Delta for the majority of its business. The fact that these major carriers run similar business models and were both in bankruptcy adds to the severity of this weakness.

Ð'* SkyWest was ranked near the bottom of the list of 16 airlines for overall customer service, specifically lost baggage and customer complaints. This is a competitive deficiency for SkyWest. Developing and maintaining high levels of customer service is essential if a regional airline wants to enter into contracts with major carriers.

Ð'* SkyWest acquired a company (ASA) that had one of the worst customer service records in the industry and also had a unionized workforce. In an industry where it is imperative to manage costs, SkyWest is now vulnerable to its entire workforce coming under control of a union if the ASA labor unions seek “single carrier determination”.

Ð'* SkyWest has a generic mission/vision as stated in its 2004 annual report. Outside of one line that states that SkyWest strives to be “the airline of choice”, there is nothing in the mission/vision statement that lets anyone know what kind of airline the company is and how it plans to succeed in the future.

Opportunities

Ð'* The financial troubles of the major airlines forced these airlines to outsource more flights to regional carriers. SkyWest can now compete for more business.

Ð'* SkyWest does not have any partnerships with low-cost airlines such as Southwest. As these low-cost airlines continue